Calculate the Possible Costs Before Refinancing Your Home
Mortgage rates are the lowest since 2016 . Does this mean it’s time to refinance your home? Okay, maybe.
As CNBC reminds us, refinancing comes at its own cost:
To ensure the lower interest rate, you will have to pay the closing costs again, which may include bank fees, appraisal fees, and attorney fees, among others.
These costs usually range from 1% to 2% of the total mortgage balance, although this can vary, John Cooper, a certified financial planner at Greenwood Capital , tells CNBC Make It . For example, on a $ 300,000 mortgage, you would expect to pay about $ 6,000 in commission.
Is it worth paying $ 6,000 in commission to save hundreds of dollars in monthly mortgage payments? It depends on the circumstances – which means you have to do the math. Calculate how long it will take to recoup the cost of refinancing, and if the answer is “four or five years,” ask yourself if you plan to stay in the house for that length of time.
Nor should you assume that refinancing with a lower interest rate means paying a lower interest overall. CNBC notes that refinancing into a new 30-year mortgage, for example, could mean paying interest for another 30 years – and while a lower interest rate could save you money every month, adding another 30 years to your loan could cost you more. in the long run. On the other hand, you may not stay in your home for another 30 years, or you may use a lower interest rate to pay off your home faster. There are many variables to consider, so you need to do these calculations before you decide to refinance.
If you would like more information on when you should and shouldn’t refinance your mortgage, we have a three-step plan to help you make that decision . If you are thinking of refinancing your mortgage or have recently refinanced and want some advice, share your stories in the comments.